Volume hot, profits not, for GM Financial, Ford Credit

Editor's note: An earlier version of this story mischaracterized GM Financial's total outstanding consumer originations. It should have said 89 percent of GM Financial's total outstanding consumer loans in North America as of June 30 were for consumers with subprime credit. Also, GM Financial began leasing to some GM dealers in December 2010. An earlier version implied all dealers were involved then.

North American auto loan and lease originations combined rose in the second quarter from the year-earlier period for both Ford Motor Co.’s and General Motors’ captive finance companies.

But profitability didn’t match the increase in North American volume, for different reasons for each company.

Ford Credit insures the vast majority of Ford dealer inventory, the company said.

Ford Credit’s consumer originations for Ford and Lincoln dealers in the United States rose 14 percent during the quarter, to 306,000 loans and leases combined.

Ford Credit’s share of U.S. Ford and Lincoln dealerships’ retail volume was 40 percent in the second quarter, up from 34 percent a year earlier.

Ally acquisition

Meanwhile, General Motors Financial Co. reported much higher volume for the second quarter, based on its 2013 acquisition of overseas operations from Ally Financial and a big increase in leasing. GM Financial launched leasing for some of GM’s U.S. dealers in December 2010 and completed the nationwide rollout July 2011.

Worldwide, total loan and lease originations jumped 57 percent to $5.18 billion in the second quarter. Revenues surged 42 percent to $1.19 billion.

But there’s a downside to profits from the greater volume. The new overseas loan portfolio, as well as GM Financial’s leases in the United States and Canada, is overwhelmingly prime-risk. Those loans and leases carry less risk but also thinner margins than GM Financial’s core subprime loan business in North America, the company said.

North American loan and lease originations combined increased 42 percent to $3.1 billion. That included almost $1.55 billion worth of leases, or almost double the year-earlier amount, and nearly matching consumer loan volume for North America of just over $1.55 billion, up 15 percent. (Before rounding, consumer loans topped leases by $4 million.)

Also in the second quarter, GM Financial rolled out prime-risk retail lending to U.S. dealerships, following up on a pilot program that was launched in the first quarter, the company said.

‘Gaining momentum’

It didn’t have a big impact on second-quarter results. “We did very little volume,” said Dan Berce, CEO of GM Financial, in a conference call.

“It was rolled out mid-quarter, but it is gaining momentum and July is seeing a pickup in activity. Just expectationwise, it is going to be a slow rollout, so we expect more volume in the second half, but really not hitting its stride until 2015,” he said.

GM Financial reported that as of June 30, 89 percent of its total outstanding consumer loans in North America were for consumers with subprime credit, defined as FICO scores under 620. Outside of North America, the company said, “substantially all” of its customers have prime-risk credit.

GM business represented 66 percent of GM Financial’s loan and lease originations in the second quarter, up from 59 percent a year earlier.